69 F. Supp. 3d 742
N.D. Ill.2014Background
- Nesbitt sued Adams Valuation Corp. and Douglas Adams (among others) alleging a scheme to defraud banks by submitting intentionally inflated real‑estate appraisals and skimming loan proceeds; claims include RICO, RICO conspiracy, common‑law fraud, and aiding-and-abetting.
- General Star issued a Real Estate Errors & Omissions policy to Adams that covers damages from acts, errors, or omissions in providing professional appraisal services but contains Exclusion A for claims "arising out of a dishonest, fraudulent, criminal or malicious act or omission, or intentional misrepresentation, ... committed by, at the direction of, or with the knowledge of any Insured."
- General Star sued for a declaratory judgment that it has no duty to defend Adams in the Nesbitt suit and moved for judgment on the pleadings under Rule 12(c).
- The court applied Illinois law and the duty‑to‑defend standard: compare the underlying complaint’s factual allegations to policy language; ambiguities resolved for insured, but exclusions borne by insurer.
- The Nesbitt complaint’s specific factual allegations charge intentional, knowing, and criminal conduct by Adams (inflated appraisals, participation in the scheme), which fall squarely within Exclusion A.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether General Star has a duty to defend under the policy given Exclusion A | Nesbitt’s underlying factual allegations trigger coverage for professional services | General Star: Exclusion A bars coverage because claims allege dishonest/criminal acts by Adams | No duty to defend — Exclusion A applies to Nesbitt’s RICO and fraud allegations |
| Whether court must look beyond pleading labels to the allegedly tortious conduct | Nesbitt: focus on alleged conduct supports liability | Adams: court should examine factual allegations, not merely legal theories, to assess coverage | Court did examine conduct and found allegations necessarily allege intentional/criminal acts, so exclusion applies |
| Whether declaratory action is premature while underlying case remains and may be amended | (implied) Nesbitt might amend to allege non‑excluded conduct | Adams: declaratory judgment is premature because amendments in Nesbitt could change coverage analysis | Rejected — insurer may seek declaration based on current pleadings; decision limited to pleadings filed to date |
| Whether Adams preserved affirmative defenses (waiver, estoppel, statutory preclusion) to avoid judgment on pleadings | Adams asserted these defenses in answer | General Star: defenses not argued substantively in response brief | Forfeited — Adams did not press these defenses in opposition, so they do not prevent judgment on the pleadings |
Key Cases Cited
- Clarendon Nat’l Ins. Co. v. Medina, 645 F.3d 928 (7th Cir. 2011) (rules on insurance‑policy interpretation and construing exclusions)
- Amerisure Mut. Ins. Co. v. Microplastics, Inc., 622 F.3d 806 (7th Cir. 2010) (duty to defend arises if underlying complaint alleges facts within or potentially within coverage)
- Connecticut Indem. Co. v. DER Travel Serv., Inc., 328 F.3d 347 (7th Cir. 2003) (distinguishing claims that can be pleaded negligently from ones that necessarily allege intentional misconduct for exclusion analysis)
- Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307 (Ill. 2006) (court will not search for ambiguity where policy language is clear)
- Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d 771 (7th Cir. 1994) (elements required to state a § 1962(c) RICO claim)